Advice for Buying a Restaurant and Selling a Restaurant

7 Deadly Mistakes in Selling a Restaurant

Posted by Robin Gagnon on Jan 22, 2013 9:31:00 AM

Selling a RestaurantWhat separates the “solds” from the “might have solds?”  These seven killer mistakes in selling a restaurant made by owners lead the way.

As restaurant brokers, we’ve seen it all but these mistakes top the list when selling a restaurant and put you at a severe disadvantage in the marketplace. 

1.       The first deadly mistake in selling a restaurant is Hiring a rookie.  A residential agent attempting to sell your restaurant qualifies in this category.  A residential agent doesn’t have the background, experience or legal forms to even assist in selling a restaurant but all too often, it happens.  If you are even tempted to go this route, ask any would-be agent these questions. 

  • Where will my restaurant be marketed?  If they say the MLS or Multiple Listing Service – RUN as your listing will be public for thousands of agents under no confidentiality agreement.
  • How many restaurants have you ever sold?
  • How many restaurant valuations have you personally  performed and how are you arriving at your basis for my restaurant’s value?

2.       Mistake number two is Hiring a General Business Broker.  A general business broker is a step up from a residential agent but still does not have the specific knowledge and understanding of the business or the client base to sell your restaurant.  Talk with a specialist and compare the two options before making the second deadly mistake.

3.       The third deadly mistake in selling a restaurant is Selling it yourself.   Some sellers are tempted to go this route to avoid commission but the strategy can actually backfire.  Often the restaurant broker can value the business through his knowledge and experience over and above what the seller would ask on his own.  This negates the issue of commission since the valuation is higher and the owner receives more.  Secondly, an owner that is “emotionally connected” to his business has trouble separating those feelings when it comes time to negotiation and often blow deals over small issues.  Lastly, an owner trying to sell his restaurant doesn’t have the legal forms and protections to keep the listing confidential and prequalify buyers to weed out the “lookers.”  A professional restaurant broker does all of this and more with very little cost to a seller.    

4.       The fourth deadly mistake in selling a restaurant is asking too much.   Like all forms of real estate, the most activity on a listing takes place at the time it is released.  Putting too high a price in the beginning to “test the waters” can eliminate viable candidates.  It's a reality that in selling hundreds of restaurants, we restaurant brokers have rarely seen any business sell for more than it is worth.

5.       Asking too little is the fifth deadly mistake in a selling a restaurant.  An expert restaurant broker will interview and glean information from your profit and loss statements that add to increasing the value of the business on the open market.  As a seller, you may overlook common expenses that represent value to a new buyer like cell phone expense paid by the business or health insurance covering you and your family.

6.       Giving information before qualifying buyers is the sixth deadly mistake in selling a restaurant.  This is a rookie mistake (see deadly mistake number one) and an owner mistake (see deadly mistake number three) and is sometimes made by inexperienced brokers (see deadly mistake number two).  Buyers must be qualified before they are provided with sensitive information about your business.  Business identity theft is on the rise and any financial documents may contain your employer identification number or other information needed by thieves to ruin your business credit.  You wouldn’t hand over your social security number to a complete stranger so never allow anyone to hand over your EIN (employer identification number).restaurants for sale

7.       Lastly, the seventh deadly mistake in selling a restaurant is marketing to the masses without Legal Protection.  A restaurant broker has confidentiality agreements that hold consequences for buyers that breach confidentiality and protect your interests.

Now that you know what they are, you can avoid the seven deadly mistakes in selling your restaurant.

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Topics: Selling a Restaurant